(Ignore income taxes in this problem.) Buy-Rite Pharmacy has purchased a small a

Question

(Ignore income taxes in this problem.) Buy-Rite Pharmacy has purchased a small auto for delivering prescriptions. The auto was purchased for $24,000 and will have a 6-year useful life and a $5,800 salvage value. Delivering prescriptions (which the pharmacy has never done before) should increase gross revenues by at least $33,800 per year. The cost of these prescriptions to the pharmacy will be about $28,600 per year. The pharmacy depreciates all assets using the straight-line method. The payback period for the auto is closest to:

Explanation / Answer

Revenue Per Year 33800 Cost Per Year 28600 Cash Flow Per Year 5200 Payback Period = Initial Investment/ Cash Flow Per Year =24000/5200 4.62

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